NFTRH 715 (online edition)

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An unexpected commitment has popped up this weekend and so this week’s report is posted online in a format that is easier for me to manage, time-wise. It will be more of an abbreviated bullet point style rather than the usual formal style. This post is started during market hours on Friday, so while the book is not closed on the week I think we have enough information to effectively review the situation, pre-FOMC (which I think has the possibility of being a very important one).

FOMC on Tap

Why is this meeting so important?

  • It is the last meeting until September. So there is a long gap in between.
  • Some economic signals have been decelerating and Treasury bonds have been bouncing as expected (yields declining).
  • Inflation signals have also been rolling over (Ref. RINF ‘inflation expectations’ ETF on the NFTRH interactive charts page and the pullback in yields per the previous bullet point).
  • The .75% rate hike now fairly strongly favored by CME traders brings the Fed Funds rate up to the level of the 3 month T-bill, which has been a guide for the Fed’s hawk routine for all of 2022.

As you can see, a .75% hike brings them to 2.25% to 2.5%. The T-bill is currently 2.35%.

cme group fed funds

While a 1% hike had been at significantly higher odds a week or two ago after the latest inflammatory (and backward looking) CPI report, the market’s signals are calming that down. Let’s plan on .75%, but if the Fed wants to put a good hawk scare into markets over its summer recess, there is a small chance they go 1%. A lot might depend on how markets are reacting going into the meeting. If they are exuberant that might not be welcomed by the eggheads. If they are in pullback mode I’d expect .75%. That goes for the precious metals too. If gold and silver were to put on a display of bravado in the face of the oncoming FOMC I’d take some caution.


In a related matter, as inflation signals fade now some lagging indicators are starting to fade on inflation. This goes hand in hand with a deceleration in the inflated economy, but could be another interim ‘Goldilocks’ relief signal as well, since inflation has been THE boogeyman of the current cycle.

Here is the latest Philly Fed manufacturing survey data showing business activity, projections and prices paid and received rolling over. Not exactly the kind of stuff to stimulate the Fed into a more hawkish stance, is it?

Legs are getting kicked out from under the economic table and yet the tardy Fed, so late to the policy tightening party, continues to be perceived as hawkish. Meanwhile, the 2yr Treasury yield is also declining but still well above the level of the T-bill and the soon to be Fed Funds in the 2.25% to 2.5% range. Recall that it has in the past been a danger sign for markets when the Fed Funds overshoots the 2yr yield to the upside. As yet no cause for concern on that front. But if the 2yr loses its SMA 50 and starts to tank the Fed had better not be asleep at the switch. The concern is that it dragged its feet before putting on its hawk costume and should not do that again to the downside or risk to markets is going to rise markedly.

Market Sentiment

Meanwhile, speaking of risk, we noted last week that the short-term risk readings in stocks had elevated and that is still the case as Dumb money indicators eat the market. The relief rally is slowly doing its job in emboldening casino patrons according to Sentimentrader’s data.

NAAIM took a bite out of the market this week as well (as of 7.20.22) with investment managers doing as they usually do, chasing (or running away from) performance. Short-term they are chasing. Longer-term they have been running away from the bear. This data is from well before Friday’s hit to the markets. advises bounces in both Investors Intelligence (newsletters) and AAII (Ma & Pa) as of July 19 and July 20, respectively. But overall the sentiment backdrop is still in the corner of the bulls on a contrarian basis.

Market Sentiment Bottom Line

Still constructive for the bulls, but you can see the little perk up in sentiment that brought on Friday’s market pullback. It would not be surprising to see more short-term jitters leading into the great and powerful Fed of Oz.

US Stock Market

Generally the indexes have taken out the 50 day moving averages and despite Friday’s pullback, remain above them. So it is still ‘bounce on’, technically. With the short-term upside sentiment blips shown above there could be some volatility to start the week and being anything but a routine FOMC week, some mayhem would be logical.

As a representative example, here is SPX sitting on top of the SMA 50 (blue). The bounce is fully intact until/unless the SMA 50 and the visual support area that coincides with it are lost. There is a gap down there at 3796, which could fill and is a minor concern. It could also easily fill later after the bounce plays out, assuming the current view of an incomplete bear market holds true.

From the short side of the market, conservative Gary is still looking for 4150 or better yet, 4350 if the bulls get really lathered up on this bounce/rally, in order to short. Aside from that, I have little interest. My personal preference is not to chase downside momentum by shorting just as I don’t like chasing upside momo. Yours may be different, but that is my preference.

Global Stock Markets

Let’s put up the charts and let you observe the trends, which are and have been down. Bounces are still in progress for most items, but interestingly the China large caps, which led the others to bounce, continue to weaken. That could easily be a leadership sign going the other way as well.

Japan is close to making a higher high, and that bears watching. Short of that I am still looking for clear long-term support on the Nikkei beginning at 24000.

Precious Metals

This post generally showed the public what we have been working on all these months, while not refining a buying opportunity. That we will do in NFTRH when the signals come in.

The best signals I see right now are…

  • Silver sitting on long-term support per this update.
  • The extremely oversold BPGDM.
  • The seasonal (admittedly a moving target in any given year), which bottoms in July for gold and silver.
  • The relentless sell-down in the precious metals and miners in unison with commodities, which should have been selling down in a time of decreasing inflation expectations.
  • But that means that a decrease in cyclical inflation pressure is helpful for the gold mining case, does it not? Yes.
  • With items like the Philly manufacturing survey above and also unemployment claims starting to crop up against the economy, the macro fundamental situation continues to align for the counter-cyclical gold sector.
  • Gold and silver Commitments of Traders data were already constructive (gold) and contrary bullish (silver) and this week saw even more improvement as silver and gold each saw large Speculators net short last week, Commercials net long last week and small Specs still out of the game. CoT is not a timer, it is a sentiment condition to a bullish situation and it is contrary bullish.

Precious Metals Macro Fundamentals

With mining cost inputs rising due to inflation and especially rising in relation to gold, the miners’ product, the cyclical inflationary backdrop has been no friend to gold mining. Yet despite wildly under-performing during the inflation (as they should have) they have been sold down along with the inflation trades, like copper miners and our example using copper miner FCX.

So in adding a couple of positions on Thursday (RGLD & BTG) I went against this chart’s implication. What I actually like is that while FCX bounced last week there sat the gold stock sector in Palookaville. Is that the start of the separation they will need to show from the inflation trades? To be determined. If this chart – merely one of several touch points on the sector – turns out to be correct there would be much more pain before the pleasure. But with next week’s sure to be dynamic market could also buy the news of what could potentially be the Fed’s last rate hike. So, I am in to a modest degree.

Another minor caution is that silver and gold miners have not started to lead their metals. The whole shebang could well bottom together, but it would be nice to see a hint of relative strength in the miners. Not happening. Not yet.

Gold has gotten walloped lately and its ratios to stock markets have pulled back hard. This will obviously need to reverse back upward or a world of casino patrons will not look to gold stocks for any relief from the stock market bear.

We also need to see gold start to out-perform the inflation expectations gauge and by extension the CRB index. However, there is already an intermediate uptrend in Gold/Industrial Metals, a very cyclical and inflation sensitive area.

Last but not least, the Gold/Oil ratio has been in a somewhat constructive posture for a month now, despite the poor price performance of nominal gold.

Precious Metals Bottom Line

It’s a process and it is IN process. While I think that considering the sentiment (incl. CoT) situation something dynamic could happen in and around next week’s FOMC, let’s realize that nothing has happened yet, the technicals stink and the macro indicators are not complete.

As far as gold stocks are concerned, the elements are in play for a good rally if not the end of the larger correction. But I’ll ask you to recall that ever since the sector lost important support in early June another option has been on the table. That option is a crash, sentiment be damned as crashes often occur as climactic events amid wildly over-bearish sentiment.

Were that to happen and assuming the rest of the macro would be falling apart as well I cannot see how I would not be pounding a table. As yet, no table pounding. It’s a process.


Time is catching up with me and here is where I’ll start abbreviating the report. More bullet points…

  • Inflation expectations are fading and hence, given the correlation we have shown between RINF and the CRB index, commodities are logically in a pretty solid correction (CRB is about 15% from its early June high).
  • With some of our other work showing economic deceleration and prices, including commodity and materials prices starting to follow, there appears more risk as the wider inflation trades continue to get corrected.
  • The “last inflated man standing”, AKA Energy, has held the index aloft.
  • Gas put on a strong rally after we noted its constructive situation a couple weeks ago. Oil on the other hand is sitting on its daily SMA 200 and has a decision to make about whether it will finally break bearish or recover. As with Gas its major daily trend (SMA 200) is still up. So there’s that.

Commodities Bottom Line

With our projection of the 30yr Treasury yield having broken to the upside from a decades-long continuum, other yields and possibly even inflation indicators not broken but pulling back, we should not rule out the inflation trades. It is best to take the market in chunks; at least it is best for me. If you go beyond a given ‘chunk’ you risk becoming a market predictor AKA a wannabe guru AKA crystal ball reader AKA charlatan beholden to bias and dogma.

It’s a world where precious resources are in demand. So some of the outlier commodities like battery metals (e.g. nickel), uranium, specialty materials like REE, lithium and of course Energy commodities could benefit from global dynamics put in play by increasing international tensions regardless of whether or not we see an inflation hysteria like the one that topped out in the spring of 2022.

So bottom line, it’s time to continue to be be guarded but the play is not dead by any means.


Why, it’s Uncle Buck über alles. But the difference between now and a year ago is that EVERYBODY knows it. While probably still confused about how USD could rally so hard even before the inflation trades broke down, we can assume that the average market player is fully apprised of Unc’s status as king of the [currency] world. That very point – USD’s obvious and now accepted bullishness – could be its vulnerability if a counter-trend correction is setting up.

And what better setup than the hawking Fed, ready to boost the Funds rate by at least .75%?

Technically however, USD is in ship shape despite a short-term pullback. The daily SMA 50 is sloping upward toward the first support level at 105. It’s a technically bullish picture.

Over in the Bear Olympics, we find the Yen, Euro and British Pound leading the field.

We also find the ‘commodity currencies’, CAD & AUD, bouncing as would logically be expected as the inflation trades bounce. Both are still in lockdown at/below their downtrending 50 day averages, however.

Bitcoin (weekly) made a move to hold and bounce from the support area we’ve been watching. I continue not to have interest at this time but that is me, a relative skeptic. I did see that Twitter influencer (and former NFTRH subscriber) Larry was touting it again this week in an interview with a glad-handing fellow Twitter influencer. Problem being, the tout has been in play since the top. These guys, I tell you…

Regardless, BTC can continue to bounce if other speculative macro trades continue to do so.

Currencies Bottom Line

Uncle Buck is bullish. Period.

For that to change, we’d need to see a contrarian situation revolving around the hawkish Fed manifest. Or just maybe some inklings that the Fed will have to soon follow the bond market – in its usual tardy fashion – off of its hawk stance.

Allocation (Roth IRA, no contributions, non-taxable)

Why, there’s a lot of cash! Blessed, modest interest paying cash (and equiv.). 88% cash and equiv. after adjustment. VIXY was added as a short-term volatility hedge. But the VIX acted strangely on Friday and as noted in the Trade Log, I am not sophisticated enough to assign a clear interpretation of that. One interpretation is that it did not confirm that bearish market day. So cash is the thing where risk management is concerned.

Positions are in order of size as usual.


  • Broad markets are bouncing with sentiment generally still a tailwind.
  • FOMC week has the potential to provide a contrary positive to markets if the Fed’s tone follows recent economic and inflation signals toward a more dovish view. Favored here would be the ‘Goldilocks’ stuff focused on Growth/Tech, but others could rally as well.
  • But the bear market remains in force on the bigger picture. So we want to see the markets hold support areas and prove the short-term bullish/bounce view remains intact, not the other way around. We have nothing to prove to this market. It needs to prove to us.
  • The global macro is slowly grinding to an alignment that is positive for gold, and silver is at very clear long-term support. Sentiment, seasonal and CoT are beneficial. Technicals are not.
  • USD is bullish. USD is vulnerable to a contrarian play if inflation starts to fade. Sounds counterintuitive, but it’s inflation and the fear of a hawking Fed that has boosted the reserve currency and a fade or reversal in those things could compromise that play.

See you next week in what is sure to be an interesting one.


This Post Has 2 Comments

  1. Anonymous

    Thank you very much for this type of report, personally I prefer it over the pdf you send via email.

    1. Gary

      Not the first time I’ve heard that. I’ll have to think about this. It’s easier for me to do it as a protected post like this and if more people prefer it than not, why am I doing more work to do a less preferred style. Again, I’ll consider. Thank you.

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